The icon for Didi Chuxing application, left, is displayed on a smartphone screen. (Photographer: Qilai Shen/Bloomberg)

Beleaguered Didi Is Said to Lose $585 Million in Just Six Months

(Bloomberg) -- Chinese ride-hailing giant Didi Chuxing lost 4 billion yuan ($585 million) in the first six months of 2018, people familiar with the matter said, underscoring the depth of competition facing a company already struggling with unprecedented regulatory scrutiny.

The Beijing-based startup backed by Softbank Group Corp. and Apple Inc. doled out about $1.7 billion in subsidies and discounts to passengers and drivers in the first half to neutralize hard-charging rivals such as Meituan Dianping, the people said, requesting not to be named because the matter is private.

Didi, the world’s second most valuable startup, has failed to generate a profit in the six years since its founding, they said. Its cash-burn recalls that of Uber Technologies Inc., which ran through billions of dollars but is reining in losses ahead of an initial public offering. The Chinese company also has to deal this year with blowback from the deaths of two passengers allegedly at the hands of Didi drivers, which has drawn fire from the government and triggered a #deleteDidi online campaign.

Didi has since put some expansion plans on hold while it shakes up its compliance and safety measures. Founder and Chief Executive Officer Cheng Wei told employees the company needs to overhaul a culture that put business growth before the well-being of its customers, according to people familiar with the matter.

“We have to ask some hard questions: does Didi have core values, are we only a company that focuses on interests and ignores safety and social responsibilities,” Cheng said in an email, according to people who’ve seen the memo and verified its authenticity. “The problem is within ourselves. Our desire for success caused us to forget our mission. The expansion frenzy planted seeds of trouble and our internal system couldn’t keep up with our expansion.”

Such is the cost of competition that Meituan this week declared it’s halting further spending on ride-hailing as it prepares for a Hong Kong IPO.

Didi still returns most of its revenue via subsidies to riders and drivers, one of the people said. It consequently generated a wafer-thin 1.6 percent gross margin in the first half, the person said. Only about 16 percent of its transactions across its mobility or transport businesses becomes revenue, the people said. The company declined to comment in an emailed statement.

Didi’s troubled 2018 comes after a successful years-long run, when it raised billions of dollars and forced Uber out of China after a costly subsidy war. The U.S. company is said to have lost $2 billion during the two years it operated in the Asian country, eventually folding its business into Didi’s in return for a stake in the Chinese company.

©2018 Bloomberg L.P.